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i'm starting an LLC with a close friend. we're making mobile apps. i'm the developer, he's the graphics guy. we plan to make and sell several different apps. i'll be working full time on this company, and he'll be working part time. i'll be doing 70-80% of the work. however, he may not be working on every app that the company publishes. he has a busy contracting business, and he's not sure what his availability is going to be. so it seems like we'll have to divide the profits on a per-app basis. we'll keep track of our hours on each app, and divide the profits per app based on how much work we each did on the app. however, the work isn't just on apps. i'll be doing a lot of work on the website, and tech support, and all the little things a business needs to keeping running. he'll just be going graphics, and that's it. so it's getting a bit complicated. how do i place a value on the work i'll be doing that isn't app related? it's not clear how many hours i'll need to spend on those non-app developing tasks. do we track our hours on every aspect of the business, and pay ourselves an hourly wage? what if there's excess profit leftover? or what if there's not enough to pay ourselves the wages we're due?

on top of all this, how do we determine who owns what percentage of the company? it's not clear how much my partner will be participating in the long term. if he gets busy, or takes a full time job, it may end up being just me, and i might have to find another partner, or hire an employee. any advice would be appreciated!

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Get a lawyer. Really. Some things better not done on your own. – littleadv May 25 '12 at 3:27

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If I were you, for the sake of my mind, I wouldn't do business like that.

From what you told, you own 100% of the company, however you should do per-app contracts with him, so that he will get a share of the income form that specific app.

However, if you don't sell the app, rather, manage the app to earn money in the long-run, you shouldn't do this too. Because he will make an initial design, which you will replace in 2 months, he won't participate further, but you will put your life on the project and he will get a share forever for that initial design.

Speaking from experience, get a freelancer for money rather than complicating things.

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thanks for your feedback, but i'm not sure you understood the question. i don't own 100% of the company. it's a partnership with a close friend. we're both doing unpaid work, so we should both own a stake in the company. i don't have capital to spend on hiring a 3rd party to do graphics work, so that's why i'm including my friend as a founder/owner. – AppGuy May 25 '12 at 22:56
I have tried something like you laid out in your question, and it doesn't work. I found it is much easier to just pay for the services (up front or as X% over the first 1 year sales) than do a partnership +1 to Kann, and more if I could – Joe Jun 24 '12 at 16:23
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If the company is a partnership with your friend, then it doesn't matter how much or what kind of work he adds to the company. If he owns 20% of the company, then he is entitled to 20% of the profits of that company.

You see, he isn't an employee or a freelancer that is brought in to do per-app work and get paid on that basis, he is a part owner of your company. Now, if that seems unfair to you, then you need to dissolve the company and start it up again with you owning 100% and employing him for the work he does. You need to choose one way or the other, and not decide to confuse things by having him own 20% of the company but get 5% of its profits, that just gets awkward and difficult.

This is the perils of startups, if you cannot afford to pay him directly, then you have to give him equity.. and if that means he gets more out of it than you think is fair... too bad, get some working capital and pay him directly. Think of it from his PoV: he's going to give up his valuable time to help you get started and get nothing for his efforts except maybe a little payment in the future while you reap potential millions.

My advice is to start the company on your own and pay him as an employee/freelancer.

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